Disclosure boost needed by Bank shares’ rally in December quarter results

India’s stock exchanges have made the most of the current stock market rally. While cyclical stocks such as currencies tend to show the potential for initial recovery, Indian banks may not be able to justify their long-term interest rates.

That said, disclosing the quality of the asset in the December quarter performance will definitely win banks’ brownie points and investors.

One of the key outcomes that investors had hoped for in the December quarter results was a better understanding of asset quality. This is now not possible given that the suspension of asset recognition is still pending. While the Supreme Court has upheld its decision on the issue of complex interest rates, banks have not yet been able to call for a failure on loans. Analysts warn that this creates a bad credit list for banks, waiting for the outbreak. With the NPL (unpaid loan) being seized over the past few quarters, we believe this will be a higher standard for lenders if regulators allow them to see them, Kotak Institutional Equities Ltd said in a statement.

Analysts at Edelweiss Securities Ltd believe that the worst loan rate will only come from FY22. By the December quarter, however, investors will have to deal with balance sheets that are strongly supported by patience.

As the growth of loans has been secured in the private sector banks, bad lending rates may see a decline in them and even in other government banks. Hidden in key numbers, analysts hope it will be disclosed in other bank metrics. One of them is a pro forma bad loan, out of court, and the other is a lot of restructured loans. Selected banks such as HDFC Bank, ICICI Bank, State Bank of India, and others have announced that they have repaired bad interest rates, not thinking that they will be suspended but many other lenders have not done so. Another important metric would be the rate of loan restructuring. With the end of the suspension in August, banks were allowed to offer one-time adjustments to lenders to reduce stress. Overall, the restructured loan book is likely to be in the lowest digits, if management’s comments are to be believed.

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